Question 1

Which of the following is an example of a good with economies of scale?

Accepted Answer

A)  fish oil pills sold in bulk 
B)  laptops with Internet access 
C)  dog grooming 
D)  autos 
A)  fish oil pills sold in bulk 
B)  laptops with Internet access 
C)  dog grooming 
D)  autos

Question 2

Use the following to answer questions:
Figure: Maximize Monopoly Profits  
-(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by charging a price equal to:

Accepted Answer

A)  P1. 
B)  P2. 
C)  P3. 
D)  P4. 
A)  P1. 
B)  P2. 
C)  P3. 
D)  P4.

Question 3

Generating electricity:

Accepted Answer

A)  no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly. 
B)  requires a natural monopoly, along with the transmission and distribution of electricity. 
C)  requires a natural monopoly but not the transmission and distribution of electricity. 
D)  and the transmission and distribution of electricity are no longer natural monopolies. 
A)  no longer requires a natural monopoly, but the transmission and distribution of electricity remains a natural monopoly. 
B)  requires a natural monopoly, along with the transmission and distribution of electricity. 
C)  requires a natural monopoly but not the transmission and distribution of electricity. 
D)  and the transmission and distribution of electricity are no longer natural monopolies.

Question 4

Software development has high fixed costs and marginal costs that are close to zero. What would happen if software firms sold their product for marginal cost?

Accepted Answer

A)  They would have the incentive to produce new software programs. 
B)  They would produce better software. 
C)  They would increase their profits. 
D)  They would not be able to afford their fixed costs and would go out of business. 
A)  They would have the incentive to produce new software programs. 
B)  They would produce better software. 
C)  They would increase their profits. 
D)  They would not be able to afford their fixed costs and would go out of business.

Question 5

Without competition, there is a tendency for a government-run or regulated monopoly to:

Accepted Answer

A)  keep prices constant. 
B)  become inefficient by passing higher costs on to consumers. 
C)  find ways to decrease costs so as to increase profits. 
D)  become a natural monopoly. 
A)  keep prices constant. 
B)  become inefficient by passing higher costs on to consumers. 
C)  find ways to decrease costs so as to increase profits. 
D)  become a natural monopoly.

Question 6

GlaxoSmithKline owns a government grant of temporary monopoly rights on the AIDS drug Combivir due to:

Accepted Answer

A)  patents. 
B)  laws preventing entry of competitors. 
C)  economies of scale. 
D)  innovation. 
A)  patents. 
B)  laws preventing entry of competitors. 
C)  economies of scale. 
D)  innovation.

Question 7

The marginal revenue curve is a straight line beginning at the same point on the:

Accepted Answer

A)  horizontal axis as the demand curve but with half of the slope. 
B)  vertical axis as the demand curve but with half of the slope. 
C)  horizontal axis as the demand curve but with twice the slope. 
D)  vertical axis as the demand curve but with twice the slope. 
A)  horizontal axis as the demand curve but with half of the slope. 
B)  vertical axis as the demand curve but with half of the slope. 
C)  horizontal axis as the demand curve but with twice the slope. 
D)  vertical axis as the demand curve but with twice the slope.

Question 8

Typical evidence for the existence of market power would be market prices:

Accepted Answer

A)  below production costs. 
B)  equal to production costs. 
C)  above production costs. 
D)  varying with market supply and demand conditions. 
A)  below production costs. 
B)  equal to production costs. 
C)  above production costs. 
D)  varying with market supply and demand conditions.

Question 9

With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively:

Accepted Answer

A)  insensitive to the price of pharmaceuticals. 
B)  sensitive to the price of pharmaceuticals. 
C)  insensitive to the premium of health insurance. 
D)  sensitive to the premium of health insurance. 
A)  insensitive to the price of pharmaceuticals. 
B)  sensitive to the price of pharmaceuticals. 
C)  insensitive to the premium of health insurance. 
D)  sensitive to the premium of health insurance.

Question 10

Graphically show that a monopolist facing a market with a relatively inelastic demand curve will impose a higher markup than it will in a market with a relatively elastic demand curve. Explain this behavior using the "You can't take it with you" effect.

Accepted Answer

@#IMG-DLM& In both cases Q is set at the point whe

Question 11

Economic theory suggests that a natural monopoly should be:

Accepted Answer

A)  eliminated whenever it arises. 
B)  regulated to take advantage of economies of scale. 
C)  left alone to operate with excess capacity. 
D)  taken over by the government. 
A)  eliminated whenever it arises. 
B)  regulated to take advantage of economies of scale. 
C)  left alone to operate with excess capacity. 
D)  taken over by the government.

Question 12

A firm with no competitors:

Accepted Answer

A)  faces a perfectly inelastic demand curve. 
B)  faces a perfectly elastic demand curve. 
C)  still faces a downward-sloping demand curve. 
D)  has a perfectly elastic supply curve. 
A)  faces a perfectly inelastic demand curve. 
B)  faces a perfectly elastic demand curve. 
C)  still faces a downward-sloping demand curve. 
D)  has a perfectly elastic supply curve.

Question 13

California's electricity crisis as illustrated in the chapter is partially explained by the fact that generators of electric power:

Accepted Answer

A)  gain market power when demand increases. 
B)  gain market power when supply increases. 
C)  gain market power when demand decreases. 
D)  lose market power when demand increases. 
A)  gain market power when demand increases. 
B)  gain market power when supply increases. 
C)  gain market power when demand decreases. 
D)  lose market power when demand increases.

Question 14

To determine the production level, the monopolist sets marginal cost equal to price.

Accepted Answer

A) True 
 B)False

Question 15

If the demand curve for a firm is a straight line with negative slope, which of the following is the shortcut to finding the MR?

Accepted Answer

A)  The demand curve starts below the marginal revenue curve and cuts the marginal revenue curve halfway down its length. 
B)  The marginal revenue curve starts at the same point as the demand curve and has twice the slope of the demand curve. 
C)  The marginal revenue curve is parallel to the demand curve with the same slope. 
D)  The marginal revenue curve starts at the same point as the demand curve and has a slope of 0. 
A)  The demand curve starts below the marginal revenue curve and cuts the marginal revenue curve halfway down its length. 
B)  The marginal revenue curve starts at the same point as the demand curve and has twice the slope of the demand curve. 
C)  The marginal revenue curve is parallel to the demand curve with the same slope. 
D)  The marginal revenue curve starts at the same point as the demand curve and has a slope of 0.

Question 16

California's electricity problems were NOT caused by:

Accepted Answer

A)  government price floors that made the demand for electricity quite inelastic. 
B)  electricity generating companies exercising market power (i.e., restricting output in an effort to raise price and profit). 
C)  the expiration of patent protection on special equipment used to produce hydro-generated electricity. 
D)  All of the answers are correct. 
A)  government price floors that made the demand for electricity quite inelastic. 
B)  electricity generating companies exercising market power (i.e., restricting output in an effort to raise price and profit). 
C)  the expiration of patent protection on special equipment used to produce hydro-generated electricity. 
D)  All of the answers are correct.

Question 17

When a good has relatively few substitutes:

Accepted Answer

A)  demand for the good is elastic. 
B)  monopolists will tend to increase their markup for the good. 
C)  monopolists will tend to decrease their markup for the good. 
D)  producers will be able to "steal" all of the consumer surplus from consumers. 
A)  demand for the good is elastic. 
B)  monopolists will tend to increase their markup for the good. 
C)  monopolists will tend to decrease their markup for the good. 
D)  producers will be able to "steal" all of the consumer surplus from consumers.

Question 18

From an economist's perspective, what are the good and bad results associated with monopoly? Since patents are a source of monopoly power, should the government eliminate or reduce patent protection?

Accepted Answer

Economists are not concerned about the h

Question 19

What is the deadweight loss due to profit-maximizing monopoly pricing under the following conditions: the price charged for goods produced is $30. The intersection of the marginal revenue and marginal cost curves occurs where output is 300 units and marginal revenue is $10. The socially efficient level of production is 400 units at a price of $20. The demand curve is linear and downward sloping, and the marginal cost curve is linear and upward sloping.

Accepted Answer

See the fo

Question 20

Which of the following was the result of government deregulation of cable TV in the 1980s?

Accepted Answer

A)  The price of cable television fell. 
B)  The number of cable television stations increased. 
C)  The quality of cable television declined dramatically. 
D)  Consumers were upset as the price of cable television rose dramatically. 
A)  The price of cable television fell. 
B)  The number of cable television stations increased. 
C)  The quality of cable television declined dramatically. 
D)  Consumers were upset as the price of cable television rose dramatically.

Exam 13: Monopoly

Which of the following is an example of a good with economies of scale?

Use the following to answer questions: Figure: Maximize Monopoly Profits -(Figure: Maximize Monopoly Profits) Refer to the figure. The monopolist will maximize its profit by charging a price equal to:

Generating electricity:

Software development has high fixed costs and marginal costs that are close to zero. What would happen if software firms sold their product for marginal cost?

Without competition, there is a tendency for a government-run or regulated monopoly to:

GlaxoSmithKline owns a government grant of temporary monopoly rights on the AIDS drug Combivir due to:

The marginal revenue curve is a straight line beginning at the same point on the:

Typical evidence for the existence of market power would be market prices:

With health insurance, medical treatments are often paid by someone other than the patient, which will make consumers with serious diseases relatively:

Graphically show that a monopolist facing a market with a relatively inelastic demand curve will impose a higher markup than it will in a market with a relatively elastic demand curve. Explain this behavior using the "You can't take it with you" effect.

Economic theory suggests that a natural monopoly should be:

A firm with no competitors:

California's electricity crisis as illustrated in the chapter is partially explained by the fact that generators of electric power:

To determine the production level, the monopolist sets marginal cost equal to price.

If the demand curve for a firm is a straight line with negative slope, which of the following is the shortcut to finding the MR?

California's electricity problems were NOT caused by:

When a good has relatively few substitutes:

From an economist's perspective, what are the good and bad results associated with monopoly? Since patents are a source of monopoly power, should the government eliminate or reduce patent protection?

Which of the following was the result of government deregulation of cable TV in the 1980s?

The Big Ideas

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

Filters